Heterogeneous Workers and Federal Income Taxes in a Spatial Equilibrium

We study the geographic incidence and efficiency of an income tax by estimating a spatial equilibrium model with heterogeneous workers. The US income tax shifts households out of high-productivity cities, leading to locational inefficiency of 0.25 percent of output. Removing spatial tax distortions increases inequality because more educated households are more mobile and own larger shares of land. Flattening the tax schedule, or introducing cost-of-living adjustments or local wage adjustments leads to efficiency gains but causes substantial increases in inequality. Differences in mobility and land ownership across skill groups create an equity-efficiency trade-off that is unique to spatial settings. (JEL H24, H22, D31, J31, J24, R23)

Discounting Environmental Benefits for Future Generations

The standard approach to evaluating a long-term project is to use the social rate of time preference to discount the benefits and costs of future generations. A difficulty with this approach is that there is no consensus on the values of the required parameters that reflect intergenerational equity concerns. Assuming the existence of a coordinating debt policy, this article establishes a project evaluation rule that identifies Pareto-improving projects and is therefore free of value judgment. This article goes beyond the existing analysis of intergenerational discounting by exploring the implications of tax distortions in the capital market that drive a wedge between the gross (before-tax) and the net (after-tax) rates of return. Our project evaluation criterion is stricter than that recommended in government guidelines, causing fewer environmental projects to be accepted.

Access Prices Indexed to Geographical Coverage of Innovative Telecom Services

The literature on access prices and investment has suggested that firms under-invest when subject to an access provision obligation combined with a fixed access price per consumer. In this paper, I study an access price per consumer for an innovative service such as superfast broadband provided by a regulated firm that is a function of its geographical coverage (indexation approach). The indexation approach can enhance economic efficiency beyond what is achieved with a fixed access price under a set of standard assumptions. In particular, it can simultaneously induce the firms to set lower retail prices, lead to wider geographical coverage of innovative services and higher social welfare level compared with a fixed access price. Moreover, in the model, the indexation may be used to achieve approximately the Ramsey outcome, or the first-best coverage level. I address how a regulator can set the access price indexation optimally, based on the coverage cost plus an incentive. I highlight the potential role of indexation as a tool to reduce the need for public subsidies and the associated tax distortions when compared with a fixed access price.

The impact of the reform of PIS/COFINS on the Brazilian industry

PurposeIn an attempt to reduce tax distortions and increase economic efficiency, in 2002 and 2003 Brazil promoted changes in the PIS/COFINS tax, the main federal tax on consumption. Thus, in addition to the old cumulative regime calculated on company revenues, the noncumulative regime was created with higher rates and the added value as a tax basis.Design/methodology/approachThis paper analyzes the effects of the PIS/COFINS reform in a context of deindustrialization in the Brazilian economy, using a neoclassical model with two sectors.FindingsThe results suggest that after a small improvement in the aggregate economy in the short term, in the long term there was a worsening of the macroeconomic indicators. From the sector perspective, the PIS/COFINS reform may have contributed to the loss of industry participation in the Brazilian economy.Originality/valueThe study of the impact of the PIS/COFINS reform on industry through a neoclassical model is unprecedented in the national literature and contributes to the investigation of changes in the tax regime that occurred in the country.

Impacts of Direct and Indirect Tax Reforms in Vietnam: A CGE Analysis

The study applies a multi-sector multi-household static computable general equilibrium (CGE) tax model to assess the economy-wide impacts of taxes in Vietnam. It examines two tax reform scenarios based on the tax reform plan proposed by the Vietnam Ministry of Finance. The first scenario is increasing the value-added tax (VAT) rate to 12% from the current 10% rate. The second scenario relates to setting a competitive corporate income tax (CIT) rate to the lowest rate in ASEAN (Associations of South East Asian Nations) countries by reducing it from 20% to 17%. Correction of current tax distortions will have positive impacts on labour supply, utility, consumption, output, and welfare of households as they reallocate resources from more to less productive sectors of the economy. The CGE model allows for the finding of the macroeconomic and sectoral effects on prices and outputs, as well as on welfare of households. While this study contributes to the literature on the CGE model for the Vietnam economy, it is a small step for finding the optimal tax structure in Vietnam. It recommends that the Vietnam government should increase the standard VAT rate to 12% and reduce CIT rate to 17% to shift the tax burden from capitalists to consumers.

The Effect of Export Promotion on Firm-Level Performance

Most countries promote exports. This paper answers two questions: Does export promotion improve firm performance, and do any benefits outweigh costs? We solve self-selection problems by accounting for an extensive set of firm characteristics. In addition, we distinguish firms that self-selected into promotion services from firms the Danish Trade Council approached based on observed information. We find that export promotion increases sales, value added, employment, and value added per worker. For small firms, summing expenditures on export promotion, subsidies, and tax distortions, the gain in value added is roughly three times higher than the direct costs of export promotion. (JEL D22, F13, F14, L25, L53)